'Substantial' changes tackle personal, general advice confusion

After years of debate over the line between general and personal advice and rules related to each, the closely watched Quality of Advice review has put a plan on the table that cuts a swathe through previous discussions.

Reviewer Michelle Levy proposes broadening the scope of personal advice, so more situations would be captured, while suggesting a “good advice” duty should replace the existing “best interests” test, with related changes to reduce the administrative burden.

Ms Levy says the general advice concept is poorly understand by consumers, and feedback shows they want to speak with someone who can tell them what to do, and that can use information that they have.

The issue is increasingly relevant as more data and information is held about customers.

“I really want to discourage a kind of artificial wall being created between information that’s held by an institution or an advice provider and the conversations that they have with their customers and clients,” Ms Levy told a webinar last week.

Consumers currently have to be warned that general advice doesn’t take their personal circumstances into account, given the term suggests otherwise. The review says the current regime has also led to scripted conversations that shoehorn what would more naturally be personal advice conversations with customers into general advice, as more onerous personal advice regulation is avoided.

Ms Levy says the current regime is poorly suited to banks and insurers that may want to give personal advice, it doesn’t suit digital advice providers and doesn’t even work well for the advisers and licensees for whom it has been designed

The review suggests general advice should no longer be regulated or defined as a financial service, with the warning disappearing. But existing consumer protections, and financial services licensee obligations where relevant, would apply.

The inquiry focus is on the investments, superannuation and life sectors, where past problems have sparked regulatory burdens now blamed for reducing the affordability and availability of advice. But the changes would also affect general insurance.

The National Insurance Brokers Association (NIBA) and the Insurance Council of Australia are examining the paper’s proposals, which haven’t yet addressed whether the industry’s exemption from the ban on conflicted remuneration should remain.

The review is collecting more information from insurers, and says “stakeholders” will have the chance to discuss proposals and provide feedback as they are developed. The final report is due by December 16.

McCabes Principal Mathew Kaley notes that information gathering as part of underwriting could see those currently providing general advice falling within the expanded personal advice definition.

The review suggests personal advice would apply where there is a “recommendation or opinion provided to a client about a financial product (or class of financial product) and, at the time the advice is provided, the provider has or holds information about the client’s objectives, needs or any aspect of the client’s financial situation”.

The new “good advice” duty would be assessed on whether it is reasonably likely to benefit the client, with Ms Levy moving away from a proposition that “if you regulate conduct and process then the advice that spits out at the end” will be good advice.

“By focusing on the quality of the advice given, the law does not need to regulate or prescribe the inputs. It is this premise which underpins the proposals set out for consideration in this paper,” Ms Levy says.

Written documentation requirements would be eased, with a proposal to end the need to provide a Statement of Advice while Financial Services Guide rules would also be made more flexible.

“Consumers want good advice – not documents and processes. And advice can be more easily measured and assessed than conduct,” Ms Levy said.

Separately, the Australian Law Reform Commission (ALRC) is making its way through a three-year inquiry aimed at simplifying financial services law and regulations.

An interim report last year floated renaming general advice and highlighted personal and general delineation problems, but its mandate didn’t extend to a more major shake-up.

Ms Levy says nothing less than “substantial” change is needed, and the proposed approach based on principles will make it easier for consumers to get personal advice, and for it to be given by advisers, product issuers and digital advice providers.

Groups including the Financial Services Council have praised the consultation document but consumer groups are highly critical, particularly over the replacement of the best interests’ duty. Choice says the changes would set back protections by 15 years and it’s as if the Hayne royal commission has been forgotten.

Ms Levy says the proposals are a basis for further discussion, but the paper clearly anticipates some expected criticism.

“Some stakeholders might be concerned that the proposals would retract hard fought changes intended to protect consumers. I do not hold that view,” she says.

The final report, which will address commissions and finalise proposals put forward already, is only three months away from completion. Then it will be up to the Federal Labor Government to decide the way forward.